Bank of America defends response to error in face-off with shareholders

Chairman Chad Holliday and Chief Executive Brian Moynihan sought to reassure Bank of America Corp. (NYSE:BAC) shareholders that the company is on solid footing despite a recent spate of negative news.

At its annual meeting in Charlotte, BofA welcomed a small but lively group of investors, activists and attention-seekers at the Charlotte Marriott City Center, across the street from the second-largest U.S. bank's headquarters. BofA is the largest banking company in North Texas with $53.26 billion in local deposits and 157 branches.

The big agenda item today was the recent accounting mishap that prompted BofA to halt a $4 billion share repurchase plan and call off a dividend hike to 5 cents per share from the penny the bank has paid for five years. BofA disclosed a week ago that it had accidentally overstated its regulatory capital by $4 billion, dating back to 2009. It must now resubmit its capital plan to federal regulators.

"Our goal is zero errors at all times," Holliday told the assembly in his opening remarks.

He said the bank is following the same three-step program is uses for all mistakes. No. 1: "Make it right," by quickly correcting the mistake. No. 2: "Get to the bottom of it," by determining how the mistake happened and then establishing preventive measures for the future. And No. 3: "Share the learning across the institution," so other parts of the company can be prevented from making the same mistake.

Moynihan said despite the mistake BofA has "rock solid" financial performance and has correctly reported all of its financial statements and earnings reports. "I know the capital adjustment was disappointing," he said. "It was disappointing to all of us."

Breaking from recent tradition, Moynihan turned over the stage to Chief Financial Officer Bruce Thompson early in the meeting — and again multiple times throughout — to explain the mistake and report on the Bank of America balance sheet. Thompson told shareholders BofA caught the error during an internal review, immediately "escalated" the situation to the board of directors and then reported the mistake to the Federal Reserve.

From the outset, shareholders made the mistake a sticking point. Richard Davett, a frequent critic, interrupted the opening remarks to question the validity of the business meeting given the recent mistake. He later demanded director Sharon Allen, chair of the board's audit committee, and Frank Bramble, chair of the risk committee, to explain.

"It was a serious error and it was taken very seriously," Allen said, repeating Thompson's earlier explanation.

Bramble, who oversees the bank's Federal Reserve submissions, echoed the same sentiments. "We're all very disappointed in this adjustment, obviously."

CLSA analyst Mike Mayo asked the bank to provide more detailed explanations of how the mistake happened. He also questioned Holliday about whether or not BofA's massive size contributed to its accounting mistake.

BofA only disclosed that it is working with an unnamed third party to review what happened and will then hold responsible parties accountable and make needed changes.

"I believe very firmly this bank is not too big," Holliday said.

A representative from auditor PricewaterhouseCoopers attended the meeting but only offered brief boilerplate about its involvement with the accounting procedures. The firm was approved by shareholders for another year as external auditor.

All of the other management-sponsored proposals at the annual meeting passed, including measures on executive compensation and the re-election of all directors.

None of the shareholder proposals received enough votes to pass, including measures that would have opened director nominations to shareholders, required BofA to disclose all indirect lobbying expenditures and disclose more details about the environmental impacts of its financing.

The meeting featured the same set of characters promoting various interests, including the Rev. Jesse Jackson, affordable-lending advocate Bruce Marks and representatives from the Rainforest Action Network, who asked BofA to do more in response to climate change.

A bizarre moment erupted when Judy Koenick, a frequent pest at BofA meetings, began demanding BofA disclose what types of light bulbs it uses in its office buildings.

"Oh, Jesus Christ," a woman yelled from the back of the room, cutting off Koenick. "You must not attack this fine gentleman. Sit down and shut up."

The room erupted into laughter and applause.

Then the woman, later identified as Peggy McMahon, a New York shareholder, launched into the first of several speeches of her own, praising Moynihan.

"Stand tall Mr. Moynihan," she cried. "I love you Mr. Moynihan."

The CEO didn't miss a beat. "Between you and my mother, that's two of you."